MNeagle
20th May 2010, 04:39 PM
By Tracy Withers and Jacob Greber
May 21 (Bloomberg) -- New Zealand’s government is betting tax cuts will deliver higher incomes and encourage workers to stay in the country and spend rather than depart for better paying jobs overseas.
Finance Minister Bill English yesterday announced across- the-board income tax cuts, saying that about three-quarters of workers will from Oct. 1 pay a tax rate of 17.5 percent or less. The highest tax rate falls to 33 percent.
Prime Minister John Key has been trying to halt a loss of qualified and younger workers overseas, including to Australia where a mining boom is increasing demand for labor. His challenge is that New Zealand is emerging from its worst recession in three decades, which depressed wages and job creation, whereas Australia’s economy is being buoyed by demand for minerals from China.
“For the past 18 months through the global financial crisis people have stayed put, but there’s now a belief they’ll be upping sticks and looking around the world,†said Craig Ebert, senior markets economist at Bank of New Zealand Ltd. in Wellington. “The first port of call is Australia, with their higher wages. Some of these tax changes may make it worthwhile to stay on this side of the fence.â€
Australia is three hours flight from New Zealand and the two nations have reciprocal agreements that allow workers to relocate and work easily. There are an estimated 548,000 New Zealand citizens living in Australia.
In the year ended March 31, 26,400 New Zealand residents departed to Australia for six months or longer. That was down from 41,787 in the year through March 2009.
Drivers, Lawyers
Departures for Australia are “not just for the mining sector, but it tends to be at all levels, from people driving trucks in Western Australia to lawyers in Sydney,†said Ebert.
One in four residents with tertiary qualifications leave New Zealand, the highest ratio of nations in the Organization for Economic Development and Cooperation, Key said this week.
“Those who pay the top personal rate fit into some critical categories for our economy, including doctors, entrepreneurs, scientists, principals,†the prime minister told reporters on May 17. “I want those people to stay.â€
English yesterday said the tax reform package, which included raising the sales tax to 15 percent from 12.5 percent and closing loopholes to prevent people from structuring income from property investments to reduce their tax, is designed to boost savings and investment.
Australian Tax
It will also “keep more skilled Kiwis in New Zealand, a particularly important objective given the pick-up in the Australian economy,†the minister said, referring to residents by their nickname.
The adjustments mean that workers in Australia pay more tax than New Zealanders on incomes exceeding NZ$50,000 ($33,800), whereas in the past they only paid more tax if income exceeded about NZ$250,000, English said.
The top income tax rate in New Zealand, which applies to annual salaries above NZ$70,000, is now below the level in Australia, where workers on incomes of more than A$180,000 ($150,000) pay a top marginal tax rate of 45 percent.
New Zealand’s dollar climbed as much as 1.5 percent yesterday after the government said its budget would help reduce the economy’s “vulnerability†to rising foreign debt. The currency later erased gains on concern Europe’s sovereign debt crisis will derail the global economy, declining 0.6 percent to 67.38 U.S. cents as of 5:39 p.m. yesterday in Wellington.
Income Gap
The government’s changes may do little to lessen the lure of Australia, said Bill Rosenberg, an economist at the Council of Trade Unions in Wellington.
“The net benefit will be 0.7 percent for those on high and low incomes and 0.4 percent for middle-income New Zealanders,†he said. “These figures are hardly enough to bridge the 20 percent to 30 percent income gap with Australia.â€
In February, Reserve Bank Governor Alan Bollard said he didn’t think New Zealand could catch up with Australian incomes.
“Australia has been blessed by God sprinkling minerals across the top of the surface in very easily accessible areas in places where it doesn’t annoy people to mine them,†he told Television New Zealand. “We just don’t have those advantages.â€
Australia’s economic growth, stoked by Chinese demand for iron ore and energy, is forecast by the government to almost double in the next two years, worsening a shortage of workers at companies such as BHP Billiton Ltd. and Chevron Corp. that are expanding resources projects.
Wage Growth
The rebound has fueled an employment boom that has kept Australia’s unemployment rate at almost half the level of the U.S. and Europe, driven a 20 percent jump in property prices and buoyed surveys of consumer and business confidence.
Australian wages grew in the first quarter at the fastest pace in more than a year, and vacancies for skilled workers gained in May for an 11th straight month, reports showed this week. New Zealand wages for non-government workers rose at the slowest pace in nine years in the 12 months to March.
Australia’s unemployment rate was 5.4 percent last month, compared with 6 percent in New Zealand in the first quarter.
Unlike in New Zealand, Australian Treasurer Wayne Swan in last week’s annual budget confirmed previously announced plans for minor adjustments to his nation’s income tax rates.
Still, English has said the New Zealand company tax rate will fall to 28 percent from April next year, earlier than Swan’s plan to lower Australia’s rate to the same level.
http://www.bloomberg.com/apps/news?pid=20601087&sid=asgkACiGSz4g&pos=6
May 21 (Bloomberg) -- New Zealand’s government is betting tax cuts will deliver higher incomes and encourage workers to stay in the country and spend rather than depart for better paying jobs overseas.
Finance Minister Bill English yesterday announced across- the-board income tax cuts, saying that about three-quarters of workers will from Oct. 1 pay a tax rate of 17.5 percent or less. The highest tax rate falls to 33 percent.
Prime Minister John Key has been trying to halt a loss of qualified and younger workers overseas, including to Australia where a mining boom is increasing demand for labor. His challenge is that New Zealand is emerging from its worst recession in three decades, which depressed wages and job creation, whereas Australia’s economy is being buoyed by demand for minerals from China.
“For the past 18 months through the global financial crisis people have stayed put, but there’s now a belief they’ll be upping sticks and looking around the world,†said Craig Ebert, senior markets economist at Bank of New Zealand Ltd. in Wellington. “The first port of call is Australia, with their higher wages. Some of these tax changes may make it worthwhile to stay on this side of the fence.â€
Australia is three hours flight from New Zealand and the two nations have reciprocal agreements that allow workers to relocate and work easily. There are an estimated 548,000 New Zealand citizens living in Australia.
In the year ended March 31, 26,400 New Zealand residents departed to Australia for six months or longer. That was down from 41,787 in the year through March 2009.
Drivers, Lawyers
Departures for Australia are “not just for the mining sector, but it tends to be at all levels, from people driving trucks in Western Australia to lawyers in Sydney,†said Ebert.
One in four residents with tertiary qualifications leave New Zealand, the highest ratio of nations in the Organization for Economic Development and Cooperation, Key said this week.
“Those who pay the top personal rate fit into some critical categories for our economy, including doctors, entrepreneurs, scientists, principals,†the prime minister told reporters on May 17. “I want those people to stay.â€
English yesterday said the tax reform package, which included raising the sales tax to 15 percent from 12.5 percent and closing loopholes to prevent people from structuring income from property investments to reduce their tax, is designed to boost savings and investment.
Australian Tax
It will also “keep more skilled Kiwis in New Zealand, a particularly important objective given the pick-up in the Australian economy,†the minister said, referring to residents by their nickname.
The adjustments mean that workers in Australia pay more tax than New Zealanders on incomes exceeding NZ$50,000 ($33,800), whereas in the past they only paid more tax if income exceeded about NZ$250,000, English said.
The top income tax rate in New Zealand, which applies to annual salaries above NZ$70,000, is now below the level in Australia, where workers on incomes of more than A$180,000 ($150,000) pay a top marginal tax rate of 45 percent.
New Zealand’s dollar climbed as much as 1.5 percent yesterday after the government said its budget would help reduce the economy’s “vulnerability†to rising foreign debt. The currency later erased gains on concern Europe’s sovereign debt crisis will derail the global economy, declining 0.6 percent to 67.38 U.S. cents as of 5:39 p.m. yesterday in Wellington.
Income Gap
The government’s changes may do little to lessen the lure of Australia, said Bill Rosenberg, an economist at the Council of Trade Unions in Wellington.
“The net benefit will be 0.7 percent for those on high and low incomes and 0.4 percent for middle-income New Zealanders,†he said. “These figures are hardly enough to bridge the 20 percent to 30 percent income gap with Australia.â€
In February, Reserve Bank Governor Alan Bollard said he didn’t think New Zealand could catch up with Australian incomes.
“Australia has been blessed by God sprinkling minerals across the top of the surface in very easily accessible areas in places where it doesn’t annoy people to mine them,†he told Television New Zealand. “We just don’t have those advantages.â€
Australia’s economic growth, stoked by Chinese demand for iron ore and energy, is forecast by the government to almost double in the next two years, worsening a shortage of workers at companies such as BHP Billiton Ltd. and Chevron Corp. that are expanding resources projects.
Wage Growth
The rebound has fueled an employment boom that has kept Australia’s unemployment rate at almost half the level of the U.S. and Europe, driven a 20 percent jump in property prices and buoyed surveys of consumer and business confidence.
Australian wages grew in the first quarter at the fastest pace in more than a year, and vacancies for skilled workers gained in May for an 11th straight month, reports showed this week. New Zealand wages for non-government workers rose at the slowest pace in nine years in the 12 months to March.
Australia’s unemployment rate was 5.4 percent last month, compared with 6 percent in New Zealand in the first quarter.
Unlike in New Zealand, Australian Treasurer Wayne Swan in last week’s annual budget confirmed previously announced plans for minor adjustments to his nation’s income tax rates.
Still, English has said the New Zealand company tax rate will fall to 28 percent from April next year, earlier than Swan’s plan to lower Australia’s rate to the same level.
http://www.bloomberg.com/apps/news?pid=20601087&sid=asgkACiGSz4g&pos=6